Principles of Accounting

Marketing + tourism Administration

Ramyar rzgar Ahmed PhD

2019-2020
The Definition of Accounting:
 Accounting: it is simply the means by which we measure and describe the
results of economic activity. Whether you are managing a business, making
investment, preparing your income tax return, or just paying your phone bill,
you are working with accounting concepts and accounting information.
 Accounting: often is called the "Language of business" because it so widely
used in describing all types of business activities. Every investor, manager,
and business decision maker needs a clear understanding of accounting terms
and concepts.
 Accounting: is defined in many different ways. These definitions involve the
recording of business transaction in the proper books, the preparation of
financial statements from the summarized business transaction and the
analysis and interpretation of financial statement and other related statistical
data.
 Accounting: Are the evaluation of the bookkeeping and the presentation of
the result of financial statements.
 Accounting: Are determination, measurement and communication of
accounting information to users for making decision.

The Users of Accounting Information:

1. Shareholders :
In the case of companies, shareholders are interested to know the results of
operations of the company through the annual and financial position
statements showing the profit earned or loss suffered and the assets and
liabilities.
2. Investors :
Those who are interested in buying the shares in a company and advancing
money to the company are also naturally interested in the financial statements
to know how safe the investment already made is, and how safe the proposed
investment will be.
3. Creditors:
A number of suppliers make supplies on credit; they would like to be
satisfied that they will be paid in time. The financial statements greatly help
them in properly assessing property and the capability of the firm or the
institution , for payment .
4. Government:
Government allover the world is using financial statements for compiling
statistics concerning business. The statements are of great importance for
ascertaining the income tax payment.
5. Labors:
Workers are entitled for payment of bonus, which depends on the size of
profit earned; therefore, they would like to be satisfied that the bonus being
 paid to them is correct. They are much interested in knowing the profit earned
or loss suffered by the firm. This knowledge helps them in asking for their
upward revision of their wages.
6. Researchers :
The financial statements, being a mirror of business, these statements are
therefore, of great interest to scholars undertaking research in accounting
theory as well as business affairs and practices.
Fields (Branch) of Accounting:
Accounting activities may be classified into the following fields:
1. Financial Accounting : It refers to in formations that describing the financial
resources , obligations , and activities of an economic entity , if including
bookkeeping , ( the actual recording process ) and , possibly report
preparation .
2. Cost Accounting: The determination of business costs, especially unit costs
of production and distribution.
3. Auditing: The verification of records and preparation of report thereon.
4. Tax Accounting: The determination of the correct liability for taxes,
especially income taxes and social security taxes, and preparation of necessary
return.
5. Governmental Accounting: The keeping of financial records for
governmental units and nonprofit institutions and preparation of reports.
6. Managerial Accounting: The develop accounting information designed
specifically to meet the various needs of management. In addition to
developing information to assist managers , managerial accountants are
responsible for operating the company's accounting system , including the
recording of transaction and the preparation of financial statement , tax
returns , and other accounting reports .

Accounting Principles, Concepts and Conventions:

The term a principles means "Rule of action on conduct", in this sense,
accounting principles can be considered as a general law or rule for action.
Accounting principles can subdivide into two categories:
1. Accounting Concepts:
 Entity Concept :
This concept is that the business and the proprietor are considered as
separate persons for accounting purposes. Therefore the transactions of the
business are recorded in the books of the business as viewed from the point
of view of the business.
 Dual Aspect Concept :
Dual aspect means. All business transactions are recorded as having
the debit aspect and the credit aspect.
 Going Concern Concept :
 As per this concept, it is assumed that the business concern will have
an indefinite life. It will have its lifetime for any number of years until steps
are taken to close the concern.
 Accounting Period Concept :
The owner of the business cannot wait for a long period to know the
result of business, to know whether his business has earned a profit or
incurred a loss. Twelve months period is normally adopted for this purpose.
This time interval is called the accounting period.

 Money Measurement Concept :

As per this concept, every transaction entered into by the business
will be expressed in terms of money.
 Cost Concept :
As per this concept, an asset is recorded as the price paid for
purchase. This cost price is the basis for all subsequent accounting purpose.
 Verifiable Objective Evidence Concept :
According to this concept, all accounting transactions would be
evidenced and supported by relevant documents. Eg. For purchase of
goods, inward invoice is the supporting documents.
2. Accounting Conventions:
The term convention denotes customs and traditions which guide the
accounting while he is preparing the accounting statements. The following are
the important accounting conventions:
 Convention of Disclosure :
This Convention stipulates that the accounts should be prepared in
such a manner that all material information should be disclosure therein.
 Convention of Materiality :
As per this Convention, unnecessary items are either left out or
combined with other items.
 Convention of Consistency :
As per this convention, accounting practices and should remain
unchanged over a period of time. Only when the accounting principles are
the same, the profits of business, over a period of time can be compared.
 Convention of Conservatism :
As per this Convention, it is safe to anticipate losses than to
anticipate profit. The reason is that, if losses are anticipated, and if losses
do not materialize, no harm is done to the business. But, if profits are
anticipated and they do not materialize, much harm is done to the business.
EX1\1.Journakize the following transactions and
post them into the Ledger.
Jan.1 sardar started business with cash 500,000

Jan.2 Goods purchased from Rose Co on credit 20,0000

Jan.3 Goods sold to Ali on credit 50,000

Jan.4 Goods purchases from Asia Co for cash 40,000

Jan.5 Paid for wages 5,000

Jan.15 Goods purchased from Ali on credit 10,000

Jan.17 Goods sold to Layla on credit 5,000

Jan. 21 Goods purchased from New City on credit 30,000

Jan. 23 Paid for interest 1,500

Jan. 24 Goods purchased from Laylaon credit 20,000

Jan. 28 Cash received from Ali 10,000

Jan. 31 Cash paid to new City 25,000

Jan. 31 Paid for Rent 1,000

EX3\2 Journalize the following transactions and

post then into Ledger .2010
June.1 Started business with ID 1,000,000 out of which
paid into Bank ID 700,000
June.2 Bought furniture for ID 50,000 by cash and
machinery for ID 150,000 bycheque.

June.3 Purchased goods for ID 200,000 by cheque.

June.6 Sold goods for ID 300,000 for cash .

June.8 Purchased goods from Asia Co ID 110,000 on credit .

June.10 Paid cash for telephone charges ID 5,0June.11 bought

one typewriter for cash ID 21,000 .

June.15 Sold goods to Ali for ID 120,000 on credit .

June.17 Sold goods to Rose on credit for ID 200,000 .

June.19 Amount withdrawn from bank for personal use ID

15,000.

June. 21 Received cash from Ali ID 80.000 .

June.22 Paid into bank cash ID 75,000 .

EX3\1- Enter the following transactions in the journal

of Asia Co for the month December.
2009 .
Dec. ID
1 Asia started his business with a cash capital of
5,000,000
‫ ثيَنج مليؤن دينار كؤمثانياى ئاسيا وةك سةرمايةى يةكةم ِرؤذ ديارى‬5,000,000 ‫برى‬
ِ 12/1
. ‫كرد‬
1Bought machinery for cash 30,000
‫كرى ‪.‬‬
‫برى ‪ 30,000‬سى هةزاردينار مةكينةى ِ‬
‫‪ِ 12/1‬‬
‫‪2 Purchased googs for cash from Zaki 500,000‬‬
‫كرى ‪.‬‬
‫برى ‪ 500,000‬ثيَنج سةد هةزار دينار كةل و ثةلم لة كؤمثانياى زاكى ِ‬
‫‪ِ 12/2‬‬
‫‪3 Sold goods for cash to Ali.600,000‬‬
‫برى ‪ 600,000‬شةش سةد هةزار دينار كةل و ثةلى فرؤشتة عةلى ‪.‬‬
‫‪ِ 12/3‬‬
‫‪4 Purchased googs from Cit Center on credit2,200,000‬‬
‫كرى‪.‬‬
‫برى ‪ 2,200,000‬دوومليؤن و دووسةد هةزار دينار كةل و ثةلم لةسيتى سةنتةر ِ‬
‫‪ِ 12/4‬‬
‫‪5 Cash sales to Zaki . 2,000,000‬‬
‫برى ‪ 2,000,000‬دوومليؤن دينار ئةشيام فرؤشتة كؤمثانياى زاكى ‪.‬‬
‫‪ِ 12/5‬‬
‫‪6 Purchased goods from Basrah Co on credit 1.900,000‬‬
‫بةسرة‬
‫ِ‬ ‫كرى لة كؤمثانياى‬
‫برى ‪ 1,900,000‬مليؤنةك و نؤسةد هةزار دينار كةل و ثةلم ِ‬
‫‪ِ 12/6‬‬
‫بةقةرز ‪.‬‬
‫‪7 Credit sales to Zaki 2.300,000‬‬
‫سى سةت هةزار دينار ئةشيام فرؤشتة كؤمثانياى زاكى‬
‫برى ‪ 2,300,000‬دوومليؤن و َ‬
‫‪ِ 12/7‬‬
‫بةقةرز‪.‬‬
‫‪8 bought office furniture for cash 30,500‬‬
‫كرى ‪.‬‬
‫برى ‪ 30,500‬سى هةزار و ثيَنج سةد دينار كةل و ثةلى دريَذ خايةنم ِ‬
‫‪ِ 12/8‬‬
‫‪10 Paid cartage cashto Golden Transport Co 7,000‬‬
‫برى ‪7,000‬حةوت هةزار دينار خةرجى هات و ضؤم دا‪.‬‬
‫‪ِ 12/10‬‬

‫‪11 Paid trade expenses for cash 2,000‬‬

‫برى ‪ 2,000‬دووهةزار دينار خةرجى سةفةركردنم دا ‪.‬‬
‫‪ِ 12/11‬‬
‫‪15 Received interest cash of 5,000‬‬
‫برى ‪ 5,000‬ثيَنج هةزار دينار ثارةى (سوو) م وةرطرت ‪.‬‬
‫‪ِ 12/15‬‬

‫‪20 Deposit in the bank amount of 750,000‬‬

‫برى ‪ 750,000‬حةو سةت و ثةنجا هةزاردينار ثارةمان خستة ناو بانك‬
‫‪ِ 12/20‬‬
‫‪24 Pai rent for cash 50,000‬‬
‫برى ‪ 50,000‬ثةنجا هةزار دينار ثارةى كريَمان دا‪.‬‬
‫‪ِ 12/24‬‬
27 Paid insurance premium by cheque 100,000
‫ سةد هةزار دينار ثارةى (تأمينات ) واتا ثارةى دلَنيايى بةضةك‬100,000 ‫برى‬
ِ 12/27
.‫دا‬
30 Paid to the employees salaries by cheques 150,000
. ‫ سةد و ثةنجا هةزار دينار ثارةى مووضة ماندا بةضةك‬150,000 ‫برى‬
ِ 12/30

1/1 ‫نوى‬
َ ‫كردنةوةى حيسابى‬Opening entry
‫كري‬
َ ‫( كةمى‬Debit) ‫ بؤ كردنةوةى حيساب ث َيويستة ذمارةكانى ديبيَت‬
‫( دةكةى‬Credit) ‫ديَت‬
. ‫( دةنووسر َيت‬Capital) ‫ئةنجامةكةى بة ناوى سةرماية‬

E.g.4 Journalize the following in the

books of trader.

1)Debit balances on Janl,2010:

Cash in hand ID80,000,Cash at Bank ID250,000, Opening

Goods ID200,000,Furinture ID20,000,Building

ID100,000,

Notes Receivable ID15,000 Dedtors: Zaki ID20,000,Ali

ID10,000,Layla ID20,000.

Credit Balances on Jan 1,2010:

Notes Payable ID15,000, Creditors;Rose

ID50,000,AsiaID100,000.
 Ex 5 Jan 1 Assets: Cash in hand ID
20,000,Cash at BanK ID680,000,
Stock of goods ID400,000, Machinery ID1,000,000,

Furniture ID 100,000, Debtors;Zaki ID 250,000 and

Ali ID 15,000

Liabilities: Loan ID 500,000 Asia Co,

200,000,Notes

payableID100,000